The Ceylon Chamber of Commerce has written to President Gotabaya Rajapaksa proposing a Shared Vision, Economic Recovery Strategy and Stimulus Plan targeting an accelerated Post-COVID-19 recovery of Sri Lanka's economy.
The key elements of the proposal addressed to the President by the CCC include targeting the achievement of a “U Shaped” economic recovery at national average level where Sri Lanka regains its economic growth rate within 6-8 months of the COVID-19 Exit, while aiming for V shaped recovery in targeted internal sectors culminating in a similar V shaped recovery at national level in the longer run.
The CC has also proposed unequivocal support for strong measures required to establish a foundation for accelerated recovery such as engagement with multilateral institutions such as the IMF, ADB and World Bank with a view to securing immediate excepting funding support as well as continuation of the Crisis Action Plan of the Central Bank of Sri Lanka (CBSL) including but not limited to Maintenance of Liquidity at the potential compromise of external reserves and resorting to quantitative easing in the short run.
It has proposed the commitment of 2.5% to 3.0% of GDP towards economic recovery over a time frame of 12 months, alongside the consequent funding measures and expenditure controls the Government will need to put in place.
It has also called for the recognition of the role of the private sector in achieving the shared vision of accelerated recovery through adjustment of production and service portfolios to meet demand in adjacent sectors thereby achieving employment retention and creation and re-engineering of supply & value chains with primacy for domestic supply eco-systems, central to which will be SME Capacity Building and Financial Support where feasible.
Support for Sri Lanka’s Foreign Exchange Liquidity constraints by adopting aggressive negotiation measures with foreign suppliers to secure preferential credit terms and accelerating the digitization of operations as well as the interfaces to Suppliers, Partners and Domestic and Global customers, are also proposed by CCC.
The Ceylon Chamber of Commerce Framework for a Comprehensive economic stimulus strategy and action plan are as follows:-
• Primacy for the underlying objective of maintaining paid employment both in the formal and informal sectors of the economy including livelihood maintenance for daily income workers and low-income workers.
• Establishment of a Directional Budgetary Provision of 2.5%-3.0% of GDP (Rs 375-450 Billion) and announce the same as Sri Lanka’s commitment to an accelerated recovery
• The Establishment of an Economic Recovery Task Force (ERTF) under the Leadership of His Excellency the President and comprising senior government officials and private sector representation through the Chambers of Commerce, supplemented with representation of Economic Expertise Think Tanks and Local and International Experts.
Immediate Term Stimulus Initiatives
• Immediate Relief in the form of Settlement or Compensation via Sovereign Supported Credit Facilities, of unpaid Government bills to the private sector - unpaid bills by government to these sectors alone add up to Rs 68 billion.
• Targeted Cash transfers to the most vulnerable segments of society including daily paid casual workers. Current measures are laudable and may need to be scaled up using digital means including Mobile Money systems in order to ensure accurate “targeting” and “Efficient Delivery” keeping in view Social Distancing constraints
• Employment Assistance Schemes for Cash Strapped Firms. The survival of Enterprises across the Small, Medium and Large Sectors is an imperative which will underlie an accelerated recovery trajectory. The modality of such employment assistance could include Multi-Year, Tax Deduction Multipliers on Employment Costs.
• Portfolio of Relief Measures for Citizens & SMEs which will not put pressure on the fiscal front such as Moratorium on EPF and ETF Contribution by firms as well as employees for at least the next 6 months and concessionary deferment of electricity and water charges.
Medium Term Stimulus Strategies (May 2020 – End of 2020)
• Easing of the stress on the Financial Sector during the second half of 2020 via the following measures
• Refinancing or credit guarantees and/or tax concessions to support concessionary relief financing by commercial banks. The government could in turn seek a refinancing facility or credit guarantee line from multilateral institutions.
• Provision of Longer-term arrangements to support Banks and NBFIs to match the potential deferment of anticipated inflows in the wake of repayment deferrals
• Waiver of any penal action on shortfalls in capital adequacy of financial institutions during the recovery phase during which time financial institutions are at risk of recording losses due to the marking to market of Sovereign bonds, SLDBs, and government securities.
• Comprehensive Digitization of Government Services for access by citizens and business via the acceleration of ongoing digitization efforts.
• Formulation of a ‘Winter 2020/21 Visit Sri Lanka Campaign’ targeting specific markets where COVID-19 dynamics would result in a pent-up demand for overseas travel and a preference for less affected Indian Ocean destinations. The strategy should be well funded and designed in alignment with COVID-19 Exit planning of airlines including the national carrier.
Long Term Stimulus Strategies (12-24 Months)
• Reintroduction of the exemption from income tax of interest from all debt securities to encourage the deployment of debt capital and increasing access to cash
• Abolishment of all transaction taxes including Capital Gains Tax, Stamp Duty, VAT and other forms of taxes to facilitate restructuring to overcome crisis scenarios
• Granting of investment relief for companies that invest in Covid-Resistant sectors of the economy creating additional employment
• Structural Re-Engineering, Digitization and Transformation of Key Sectors - Every Crisis gives an opportunity to restructure and start afresh. It is hence, considered opportune that the Government should encourage and incentivize structural changes in sectors such as agriculture, education, energy and transportation.
Funding of an Accelerated Recovery Strategy
• Securing 1-3 Year Moratoriums from Multi-Lateral and Bilateral Lenders in order to ease the pressure on budget deficits due to foreign borrowing falling due.
• Engagement with the IMF and other Multilateral Agencies for a Rapid Funding Instruments (RFI)
• Securing of at least a USD 1 billion currency swap line for a minimum of 12 months from bilateral partner nations
• CBSL to provide financing to the government by purchasing government securities thereby injecting liquidity to finance a part of the recovery package.
• Deploy strategic procurement strategies to exploit the sharp fall in global oil prices.
• Initiate measures to reduce the proposed public investment of 3.7% of GDP to a lower figure of 2.5%- 3.0% of GDP for 2020 and redeploy resources towards economic recovery initiatives and the enhancement of Health infrastructure.
CCC said that on behalf of the private sector, it will support the efforts of the Government to achieve an accelerated economic recovery strategy in the post-COVID-19 era and will continue to echo the views and recommendations of the Private Sector as the country collectively addresses the challenges of the period ahead and progress towards the shared vision of an exemplary economic recovery.